Inverted-U Aggregate Investment Curves in a Dynamic Game of Advertising

Quaderni - Working Paper DSE N° 954

21 Pages Posted: 10 Jul 2014

See all articles by Luca Lambertini

Luca Lambertini

University of Bologna - Department of Economics

Georges Zaccour

HEC Montreal - Department of Decision Sciences

Date Written: July 9, 2014

Abstract

We revisit the relationship between market power and firms' investment incentives in a noncooperative differential oligopoly game in which firms sell differentiated goods and invest in advertising to increase the brand equity of their respective goods. The feedback equilibrium obtains under open-loop rules, and aggregate expenditure on goodwill takes an inverted-U shape under both Cournot and Bertrand behaviour, provided product differentiation is sufficiently high. Total industry expenditure is higher under Cournot competition.

Keywords: Goodwill, Oligopoly, Advertising, Differential games, Schumpeterian hypothesis

JEL Classification: C73, L13, M37

Suggested Citation

Lambertini, Luca and Zaccour, Georges, Inverted-U Aggregate Investment Curves in a Dynamic Game of Advertising (July 9, 2014). Quaderni - Working Paper DSE N° 954. Available at SSRN: https://ssrn.com/abstract=2464013 or http://dx.doi.org/10.2139/ssrn.2464013

Luca Lambertini (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 2092600 (Phone)
+39 051 2092664 (Fax)

Georges Zaccour

HEC Montreal - Department of Decision Sciences ( email )

HEC Montreal
3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3 H3T 2A7
Canada

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